Understanding Salary Fixation: How to Determine the Right Basic and DA Percentage from CTC?

Friends,

While fixing (Basic+DA), is there a fixed percentage we have to consider from CTC? What are the criteria for fixing it? If there is no fixed percentage, what is the ideal percentage (Basic + DA to CTC)? Please clarify my doubt.

Regards,
Shijit.

Hi Shijit,

CTC is the final figure. To arrive at this, you should ideally have a basic salary figure for various bands. Since most of the other heads are a percentage of the basic salary, it will be easier for you to determine the CTC. To have an idea about the basic salary, you can take help from various salary guides readily available in the market.

Regards,

Team GroupHR

Hi Shijit,

As per my knowledge, there is no hard and fast rule for calculating the basic of CTC. But as Mr. Malik said, ideally, it ranges from 40-50 percent. However, don't get confused if the basic is even 25 or 30 percent calculated. Usually, it depends upon the employer's choice and the number of components added.

Usually, according to my experience, tax is calculated on the basics of your CTC component, so usually, it is kept to a minimum. What I have seen is when there are very few components like mediclaim, travel allowance, special allowance, very few ones than usually they keep 40 or 50 percent. It's again the employer's choice. The less your basics, the more beneficial it is. But still, it doesn't affect so much since there are other numerous benefits which the company offers an employee in CTC, wherein you tend to save a lot of amount.

Hope it helped you to understand.
Good Luck.
Cheers,
Rashmi Bhalerao

The current trend is to keep compensation structures simple, such as basic pay, HRA, special allowance, etc. Only a few benefits are tax-exempt, like medical reimbursement (up to Rs. 15,000 per annum), LTA (once in two years based on actuals), PF contribution, etc. Most other benefits are taxable, either in the hands of the employee or the employer. Hence, it's better to keep things simple rather than to have a variety of benefits, as was the trend earlier.

Basic pay, DA, allowances, PF (employer and employee contributions), gratuity, leave encashment, housing, and all benefits provided to an employee - in short, the cost incurred by a company - is known as CTC. From this CTC, what is payable to an employee as cash depends on the company.

Dear Mr. Malic,

Could you please clarify if there is any act or rule for the basic salary to be 50% of CTC as you mentioned?

VpS: confused.

Hi Shijit,

I think the following steps will help you in fixing the salary:

1) First, you decide the CTC (this can be based on Job Band/Experience and negotiation with the candidate).
2) Ideally, the Basic amount should be between 35% to 45% of CTC. (There is no such rule for Basic fixation as per my information.)
3) Once you set the basic amount, then you fix the HRA based on Basic %. Once you fix this percentage, it should be common for all salary fixations in the future so that this can be streamlined.
4) You can consider 12% of Basic as PF employer contribution.
5) Gratuity can be 4.81% of Basic.
6) Now, the rest of the salary amount can be allocated to different heads like special, education, LTA, Bonus, etc. as per your company practices. This will make up your CTC.

I hope this helps. Let me know if you need further clarification or assistance.